Domestic boilers Ukraine

Transcription

1 Domestic boilers Ukraine World heating 2013 A multi client study By Natalia Webb July 2013

2 Domestic boilers Ukraine A multi client study Contract: Report 56368/93 Date: July 2013 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Natalia Webb Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director BSRIA Page 3 of 38 Report 56368/93

3 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices District heating MARKET SIZE AND SEGMENTATION Boiler market size Heat interface unit market size Boiler segmentation Provision of sanitary hot water Output Heat exchanger material Biomass boilers Condensing boilers End user sector DOMESTIC VERSUS OVERSEAS TRADE MARKET DRIVERS AND TRENDS Market drivers Market trends Market forecast DOMESTIC BOILERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness STRUCTURE OF SUPPLY Market shares Wall hung gas boilers Floor standing atmospheric gas boilers Jet burner boilers Solid fuel boilers Electric boilers Product range DISTRIBUTION OF DOMESTIC BOILERS Overview DIY Distribution of domestic boilers Major distributors Distributor profiles Wholesalers BSRIA Page 4 of 38 Report 56368/93

4 CONTENTS TABLES Table 1 Background data economy and construction, f... 6 Table 2 Heating stock by type of heating product, Table 3 Volume and value of the domestic boiler market, <50kW, 2011 and 2012e Table 4 Boiler sales by type of hot water provision, 2011 and 2012e Table 5 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), Table 6 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2012e Table 7 Domestic boiler sales by heat exchanger material, 2011 and 2012e Table 8 Solid fuel boilers sales by fuel type, 2011 and 2012e Table 9 Boiler market by end user sector, 2012e Table 10 Overseas trade, volume ( 000 units), 2012e Table 11 Domestic boiler market historical trends, volume ( 000 units), Table 12 Domestic boiler market forecasts, volume ( 000 units), Table 13 PESTLE analysis of Ukraine heating products market Table 14 Competitive forces analysis Table 15 Market attractiveness matrix by product type Table 16 Market shares of wall hung (condensing) gas boilers, 2011 and 2012(e) Table 17 Market shares of wall hung (non-condensing) gas boilers, 2011 and 2012(e) Table 18 Market shares of floor standing non-condensing atmospheric gas boilers, 2011 and 2012(e) Table 19 Market shares of solid fuel boilers, 2011 and 2012(e) Table 20 Product range suppliers of domestic boilers Table 21 First point of distribution for manufacturers / importers, 2012(e) Table 22 Major heating products distributors, 2011(e) Table 23 Major heating products distributors - brands, 2011(e) FIGURES Figure 1 Map of Ukraine... 6 Figure 2 Domestic boiler sales by type, volume ( 000 units), 2012e Figure 3 Boiler sales by type of hot water provision, 2012e Figure 4 Domestic boiler sales by output, volume '000 units, 2012e Figure 5 Sales of domestic boilers by end user sector, 2012(e) Figure 6 Domestic boiler market historical trends, volume ( 000 units), Figure 7 Domestic boiler market forecasts, volume, ( 000 units), Figure 8 Competitive forces analysis Figure 9 Market shares of wall hung (condensing) gas boilers, volume, 2012e Figure 10 Market shares of wall hung (non-condensing) gas boilers, volume, 2012e Figure 11 Market shares of floor standing non-condensing atmospheric gas boilers, volume, 2012e. 32 Figure 12 Market shares of solid fuel boilers, 2012e Figure 13 First point of distribution, domestic boilers, 2012(e) BSRIA Page 5 of 38 Report 56368/93

5 Domestic boilers Slovakia World heating 2013 A multi client study By Richard Bejlek June 2013

6 Domestic boilers Slovakia A multi client study Contract: Report 56368/83 Date: June 2013 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Richard Bejlek Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director BSRIA Page 3 of 32 Report 56368/83

7 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices MARKET SIZE AND SEGMENTATION Boiler market size Heat interface unit market size Boiler segmentation Provision of sanitary hot water Output Heat exchanger material Biomass boilers Condensing boilers End user sector DOMESTIC VERSUS OVERSEAS TRADE MARKET DRIVERS AND TRENDS Market drivers Market trends Market forecast DOMESTIC BOILERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness STRUCTURE OF SUPPLY Market shares Wall hung gas boilers Floor standing atmospheric gas boilers Solid fuel boilers Product range SWOT analysis DISTRIBUTION OF DOMESTIC BOILERS Overview Distribution of domestic boilers Major distributors Distributor profiles Wholesalers DIY stores BSRIA Page 4 of 32 Report 56368/83

8 CONTENTS TABLES Table 1 Background data economy and construction, (f)... 6 Table 2 Dwelling starts and completions, Table 3 Heating stock by type of heating product, Table 4 Volume and value of the domestic boiler market, <50kW, 2011 and 2012e Table 5 Volume and value of interface units, 2011 and 2012e Table 6 Most important suppliers of heat interface units Table 7 Boiler sales by type of hot water provision, 2011 and 2012e Table 8 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), Table 9 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2012e Table 10 Domestic boiler sales by heat exchanger material, 2011 and 2012e Table 11 Solid fuel boilers sales by fuel type, 2011 and 2012e Table 12 Boiler market by end user sector, 2012e Table 13 Overseas trade, volume ( 000 units), 2012e Table 14 The domestic boiler market historical trends, volume ( 000 units), Table 15 The domestic boiler market forecasts, volume ( 000 units), Table 16 PESTLE analysis of the Slovak heating products market Table 17 Competitive forces analysis Table 18 Market attractiveness matrix by product type Table 19 Market shares for wall hung (condensing) gas boilers, 2011 and 2012e Table 20 Market shares for wall hung (non-condensing) gas boilers, 2011 and 2012e Table 21 Market shares of floor standing condensing atmospheric gas boilers, 2011 and 2012e Table 22 Market shares of floor standing non-condensing atmospheric gas boilers, 2011 and 2012e 26 Table 23 Market shares for solid fuel boilers, 2011 and 2012e Table 24 Product range suppliers of domestic boilers Table 25 SWOT analysis of Protherm (Vaillant Group Slovakia) Table 26 First point of distribution for manufacturers / importers, 2012e Table 27 Major heating products distributors, Table 28 Major heating products distributors - brands, FIGURES Figure 1 Map of Slovakia... 6 Figure 2 Domestic boiler sales by type, volume ( 000 units), 2012e Figure 3 Boiler sales by type of hot water provision, 2012e Figure 4 Domestic boiler sales by output, volume '000 units, 2012e Figure 5 Sales of domestic boilers by end user sector, 2012e Figure 6 The domestic boiler market historical trends, volume ( 000 units), Figure 7 The domestic boiler market forecasts, volume, ( 000 units), Figure 8 Competitive forces analysis Figure 9 Market shares of wall hung (condensing) gas boilers, volume, 2012e Figure 10 Market shares of wall hung (non-condensing) gas boilers, volume, 2012e Figure 11 Market shares for floor standing condensing atmospheric gas boilers, volume, 2012e Figure 12 Market shares for floor standing non-condensing atmospheric gas boilers, volume, 2012e 26 Figure 13 Market shares for solid fuel boilers, 2012e Figure 14 First point of distribution, domestic boilers, 2012e BSRIA Page 5 of 32 Report 56368/83

9 1 MARKET BACKGROUND OVERVIEW Figure 1 Map of Slovakia Source: ECONOMY AND CONSTRUCTION Table 1 Background data economy and construction, (f) Units (e) 2013(f) Population Million GDP bn GDP per capita (ppp) Inflation % Unemployment % Construction output Euro bn Number of households Million New dwellings (completions) Thousands Residential Euro bn Non-residential Euro bn Civil Engineering Euro bn Source: Euro Construct/ BSRIA, OECD Population and climate According to the last census in 2010, the population of Slovakia is about 5.4 million people. Around 8% of all inhabitants live in the capital Bratislava. Due to low birth rates (around 1.2 per woman), the Slovak population is ageing. The climate of the country is marked by cold winters and mild summers. The heating season usually lasts from mid-october until the end of April. It is generally colder in eastern and northern Slovakia since many villages are located at a higher altitude. In the West and South of the country lives a Hungarian minority that accounts for about 10% of the total population. BSRIA Page 6 of 32 Report 56368/83

10 1.1.2 Economy Construction Slovakia outperformed its regional peers in terms of economic development in 2012 as its real GDP rose by 2.3%. Nevertheless, a gradual slowdown seems to be ahead in 2013 (+1.6%) due to weaker demand registered in the local automotive industry and also weak domestic demand. The centre-left government of Prime Minister Fico in power since April 2012 is applying an austerity program on the state budget level. He hopes to boost revenues by increasing taxation of the rich, banks and large corporations as well as by remodelling the pension scheme system. The government cancelled a 19-percent flat tax that was very business-friendly and raised tax on corporate revenues to 23%. It also raised income tax for individuals earning over 3,300 a month to 25% while maintaining 19-percent tax rate on incomes under that level. The Slovak parliament approved state budget for 2013 that aims to slash public deficit to below 3% of GDP. This measure combined with a latest change in labour code (which would be less flexible), poses a risk of unemployment rise in a slowing economy. Analysts in Bratislava warned that the tax burden on companies might discourage foreign investors from coming to Slovakia and domestic firms from creating more jobs as the country struggles with high unemployment. After the entry of Slovakia into Eurozone in 2009, the country was partly shielded from a financial turmoil seen in neighbouring countries. On the other hand, the exchange rate fixed against euro became very strong for the economy. If it were not for the entry into the Economic and Monetary Union EMU of the European Union, the Slovakian koruna would probably now trade 15-20% above the fixed level of This is damaging for Slovakian exports, as Slovakian products became almost overnight more expensive for its customers in the EU region. On the other hand, imported products are more affordable for Slovakian households. There is a big difference in terms of purchasing power between the region around Bratislava and central and eastern Slovakia, which are much poorer. The situation in Slovakia is now very much dependent on the demand for small cars within Europe as the local automotive industry make up to 60% of country s exports. Slovakia hosts three large automotive groups with manufacturing facilities: KIA factory in Zilina, PSA Peugeot Citroën in Trnava and Volkswagen in Bratislava Construction After two years of mild decrease, the construction dropped by 13.3% in 2012 to billion. The decline was caused both by the sharp drop in new non-residential construction (-17%) and the cancellation of large infrastructure projects (mainly motorways). A major blow to the Slovak infrastructure business came in The previous centre-right government took a U-turn in financing the highway construction and decided to fund the projects from state budget instead of PPP projects. Given that Slovakia already has a poor track record when it comes to completing large-scale infrastructure projects, the continued delays and the political uncertainties put at risk the credibility of the Slovak infrastructure business environment. According to Euroconstruct, the overall construction output should recover in 2014 and grow by 2.2% to billion. BSRIA Page 7 of 32 Report 56368/83

11 1.1.4 New house building Due to weak demand for residential real estate, new house construction in Slovakia has been declining in According to the Slovak statistical office, number of dwelling starts fell by 2% to 12,500 units from the previous year (as a comparison the volume of dwellings started was 28,300 in 2008). Number of dwelling completions remained flat at 14,500 units. The new building code that came into force in July 2010 should simplify administration of new building starts and at the same time strengthens rules for illegal construction. A new building code was enacted in the Czech Republic in 2007 with similar purposes although it failed to simplify the procedures. Table 2 Dwelling starts and completions, Dwelling Construction Starts family dwellings 8,618 10,107 13,763 11,132 9,573 9,400 8,500 Flats 11,974 8,009 14,558 9,193 6,638 3,300 4,000 Total 20,592 18,116 28,321 20,325 16,211 12,700 12,500 Dwelling Construction Completions 1+2 family dwellings 7,657 7,897 8,502 9,022 9,136 8,800 8,900 Flats and extensions 6,787 8,576 8,682 9,812 7,940 5,800 5,600 Total 14,444 16,473 17,184 18,834 17,076 14,600 14,500 Source: SSU Energy supply Slovakia fully relies on gas and oil imports from Russia, which proved to be risky during the gas crisis in January Many Slovak industrial facilities had to be shut down due to the cut in natural gas supply and households were supplied from local underground storage facilities. After completion of two blocks of Mochovce nuclear plant in 1998 and 2000, Slovakia became selfsufficient in terms of electricity. In line with the EU entry accords, Slovakia agreed to close down both blocks technology Jaslovske Bohunice plant (2006, 2008) and became thus a net importer of electricity. Another two blocks of Mochovce plant are to be completed, adding 880 MW of capacity. The Italian company Enel, which is in charge of the project, announced yet another delay in January According to the new schedule, the third block of the power plant should be completed in 2014 and the fourth one in Slovakia also started to develop its solar PV potential in The process is on-going and targeted now smaller on-roof installations below 100 kwp Residential electricity and gas supply Around 80% of all permanently inhabited dwellings are now connected to gas mains. The country underwent a massive gasification during the 1990s; the number peaked in 1997 with 63,000 new connections. In total, there are around 2,200 municipalities with gas mains out of the total number of 2,900. Electricity and gas prices are regulated by URSO, the state-run regulatory body, since January Gas prices for households were cross-subsidised by the gas monopoly supplier SPP until The company was however privatised in 2002 and the government promised investors to increase the gas price ceiling for household customers to reach market levels. Hence, households saw sharp increases between 2004 and 2007 when price doubled. BSRIA Page 8 of 32 Report 56368/83

12 When prices for households were frozen, suppliers focused on industry. According to Eurostat, the electricity prices for businesses increased by 35% between 2007 and 2009 while increase in gas prices reached 42%. In the first half of 2009, the Slovakian corporate consumers had the most expensive natural gas within Europe. In 2012, Slovak households with gas heating paid around 4.9 eurocents/kwh. Price of electricity for households was 17 eurocents/kwh (both incl. VAT and distribution charges). According to URSO, the regulated gas prices would rise only by 0.5% in 2013 whereas electricity price is set to decline by 3%. Heating system based on a wood-fired solid fuel boiler is currently the most economical, although the least comfortable and only possible in family houses. Wood is readily accessible since Slovakia is a densely forested country. Many households in rural areas also heat with low quality domestic brown coal which causes high air pollution. 1.2 HEATING STOCK Table 3 Heating stock by type of heating product, 2011 Type of heating Million dwellings % District heating (> 600 kw) % Collective heating ( kw) % Individual central heating gas % Individual central heating oil % Individual central heating solid fuel % Individual central heating others % Total individual central heating % Room heating % No heating / other heating % Total % based on industry sources It is difficult to distinguish clearly between individual central heating and collective heating given the data available from the census. It is estimated that local central heating with a boiler in the building that includes both blocks of flats (collective heating) and family houses, accounted for 770,000 dwellings. Room heating represented almost 10% of dwellings, mainly solid fuel stove, followed by gas convectors and electric convectors or accumulation heaters. The heating park has changed substantially in favour of individual central heating in the last few years, which has gained share from other types of heating. 1.3 LOCAL HEATING PRACTICES Heating practices differ in urban and in rural areas. In urban areas, blocks of flats are either connected to district or block heating, which is the most common case. If this option is not available, a wall hung gas boiler or the old space heating unit (gas convector) is used. In case of renovation, a combination boiler is installed in most cases. In rural areas, it is either a floor standing gas boiler or a solid fuel boiler (mainly wood) that heats Slovakian rural houses. With gas prices soaring, people increasingly switch to solid fuel, namely wood or coal. Wood is largely available since Slovakia is a densely forested land with abundance of sources. BSRIA Page 9 of 32 Report 56368/83

13 Since Slovakia has a high share of family housing, floor standing boilers and solid fuel boilers are the most common options. Outputs are also higher than usual, given the large average size of Slovakian houses. The most common options which would be considered by a house builder (or in renovation) in 2013 would be probably the following: Condensing gas boiler (wall hung), solar thermal and underfloor heating combined with a wood fireplace. Condensing boiler is subsidised by SPP and solar thermal by state agency (when subsidy programs are running); Where there is no gas mains, air-water heat pump and underfloor heating combined with a wood fireplace; The above may also be combined with solar PV, which is supported by means of a feed-in tariff; Biomass boiler combined with solar thermal (both subsidised by state agency) in places with no gas or where price is preferred to comfort. BSRIA Page 10 of 32 Report 56368/83

14 2 MARKET SIZE AND SEGMENTATION 2.1 BOILER MARKET SIZE The Slovak boiler market continued declining and lost another 3.4% by volume from the previous year in The main reasons are the weak construction of new apartment blocks and commercial premises on the one hand and slower demand for replacements. Number of completed dwellings in multi-storey buildings fell to slightly over half the 2009 figure when construction activity peaked. Moreover, heat pumps are also increasingly preferred to boilers in new family houses, replacing natural gas and solid fuel as primary fuel. Wall hung condensing and solid fuel boilers remained flat in 2012, while other segments declined. Table 4 Volume and value of the domestic boiler market, <50kW, 2011 and 2012e Volume ('000 units) e Euros (million) US $ (million) Volume ('000 units) Euros (million) US $ (million) Wall hung atmospheric gas condensing non-condensing Floor standing atmospheric gas condensing non-condensing Oil / gas pressure jet condensing non-condensing Solid fuel Others (electric, dual, multi-fuel) Total domestic boilers Note 1. Includes boilers sold without burners Exchange rate: 2011: 1 = US$ 1.39; 2012: 1 = US$ 1.29 Figure 2 Domestic boiler sales by type, volume ( 000 units), 2012e BSRIA Page 11 of 32 Report 56368/83

15 2.2 HEAT INTERFACE UNIT MARKET SIZE Table 5 Volume and value of interface units, 2011 and 2012e Interface units Volume (units) e Euros (million) US $ (million) Volume (units) Euros (million) US $ (million) 1, , The market for heat interface unit (HIU) was the most dynamic when a large number of apartment blocks were completed, i.e. between 2007 and Number of new dwelling completions in multistorey buildings reached 3,248 dwellings in 2012, excluding extensions. HIUs are not only sold to new residential construction, but are increasingly popular among house owners too, who retrofit old boiler rooms (block heating). The main advantages are their accountability and heat comfort for each consumption point. However, they are currently one of the most expensive solutions in multi-storey buildings to secure heating and domestic hot water. The 2012 market for HIU has been estimated at around 1,000 units. Some of the main players on market include Ivar, Meibes, Danfoss followed by the Czech manufacturers Avos Vyskov, Systherm. Also Geminox and Alfa Laval are present. Table 6 Most important suppliers of heat interface units 2012 Holding Group Danfoss A/S Ivar SpA Meibes System Technik GmbH Company / Brand Danfoss Ivar CS Meibes 2.3 BOILER SEGMENTATION Provision of sanitary hot water Combi boilers, both instantaneous and storage types, are estimated to have around 60% share on all boilers sold. Around one quarter of all wall-hung gas boilers sold have integrated storage. Heating only models represents a minority (around 40%). These are mainly solid fuel boilers and part of the floor standing gas boilers. These are usually installed with a separate indirect cylinder. Table 7 Boiler sales by type of hot water provision, 2011 and 2012e e 000 units % 000 units % Heating only % % Combination - instantaneous % % - storage % % Total % % BSRIA Page 12 of 32 Report 56368/83

16 Figure 3 Boiler sales by type of hot water provision, 2012e Output Around 76% of wall hung gas boilers are sold in the category of kw, as these are mainly destined for residential purposes in flats or modern family houses with good heat insulation. Floor standing boilers are mainly sold in the output range 25 to 35 kw and installed in bigger and/or older family houses with higher heat loss. Generally, higher output boilers are mostly sold since in Slovakia there are many family houses and proper heat insulation has not been an issue until when energy prices started to rise rapidly. Table 8 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2011 < 12 kw kw kw kw > 33 kw Total Wall hung atmospheric gas condensing non-condensing Floor standing atmospheric gas condensing non-condensing Oil / gas pressure jet condensing non-condensing Solid fuel Others Total domestic boilers BSRIA Page 13 of 32 Report 56368/83

17 Table 9 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2012e < 12 kw kw kw kw > 33 kw Total Wall hung atmospheric gas condensing non-condensing Floor standing atmospheric gas condensing non-condensing Oil / gas pressure jet condensing non-condensing Solid fuel Others Total domestic boilers Figure 4 Domestic boiler sales by output, volume '000 units, 2012e Heat exchanger material As for the heat exchanger material, cast iron makes just under 80% of floor standing boilers of all types, with the remainder being of mild steel. Main suppliers of cast iron boilers are Viadrus, Attack, Buderus and Ferroli, while the remaining Slovak and Czech manufacturers of solid fuel boilers supply mild steel products (Protherm, Atmos, Vimar, Opop, Benekov, Slokov and others). Besides cast iron, Attack also produces mild steel boilers (solid fuel pyrolitic). Table 10 Domestic boiler sales by heat exchanger material, 2011 and 2012e e 000 units % 000 units % Cast iron % % Mild steel % % Copper % % Aluminium % % Stainless steel % % Others % % Total % % BSRIA Page 14 of 32 Report 56368/83

18 2.3.4 Biomass boilers Table 11 Solid fuel boilers sales by fuel type, 2011 and 2012e e 000 units % 000 units % Pellets % % Wood chips % % Wood logs % % Other biomass % % Universal % % Coat % % Total % % Others includes all other biomass and non-biomass solid fuel (e.g. straw, crops) boilers Solid fuel boilers sold in Slovakia are predominantly of the universal type (64%) able to burn all types of coal and wood. These boilers benefit from lower investment costs against the automatic boilers for pellets and chips. The second largest group are the pyrolytic boilers (20%) firing logwood. There are several significant producers of this type of boiler either in the neighbouring Czech Republic (Atmos, Verner, Benekov, Opop, Viadrus) or locally (Attack, Vimar). The market for automatic pellets, woodchips and other biomass (corn and corn pellets) is still developing. The 2012 market for pellet boilers is estimated at around 1,000 units, with Ferroli, Viadrus, Atmos, Ponast, Opop and the local Attack being the main brands. Low purchasing power in rural areas (where such boilers are mostly used) combined with high investment costs of automatic wood boilers is a major obstacle for a wider use of these units. Households prefer cheaper logwood or universal boilers which mirrors in the market breakdown. Pellets are produced locally in Slovakia. Large part of Slovak production is exported to Austria, where there is a large base of pellet boilers. Export has been driving the price of pellets up in Slovakia. The running cost of pellet-fired boilers is thus substantially higher as compared to logwood Condensing boilers The growth of the condensing segment has been very dynamic in Slovakia, as compared to its European peers. The market for wall hung condensing boilers is now almost twice as big as the noncondensing one. It is expected that the non-condensing segment would gradually diminish during the next few years. BSRIA Page 15 of 32 Report 56368/83

19 2.4 END USER SECTOR Table 12 Boiler market by end user sector, 2012e 000 units % Residential segment* % Residential new build % Residential refurbishment & replacement % Commercial segment % Multi-dwellings new build % Multi-dwellings refurbishment & replacement % Non-residential new build % Non-residential refurbishment & replacement % Total % * Please note that Residential segment includes only 1+ 2 family houses. Multi-dwelling buildings are included in Commercial segment. New housing is estimated to represent around 14-15% of sales of domestic boilers. This is a major decline against the previous years. Based on recent figures from the Slovak Statistical Office for 2012, the number of new dwellings completed reached 14,500 units, of which 8,900 were family houses, 3,248 newly constructed flats and 2,352 extensions to existing residential buildings. Flats, however, are most frequently heated centrally. Replacement sales (both residential and non-residential) constitute the bulk of the market with almost 75% of all boiler sales. The commercial new build sector registered large drops in 2012; the proportion of domestic boiler sold to that sector is estimated to represent a mere 5% on the overall boiler market. Figure 5 Sales of domestic boilers by end user sector, 2012e BSRIA Page 16 of 32 Report 56368/83

20 3 DOMESTIC VERSUS OVERSEAS TRADE Table 13 Overseas trade, volume ( 000 units), 2012e A B C A-B+C B / A Home Market Imports Exports Production Imports as % of home market Domestic boilers % There are 3 main manufacturers of boilers in Slovakia: Protherm, part of Vaillant Group, the expanding privately-owned Attack and the biomass specialist Vimar. Smaller local producers include Maga in Rimavska Sobota (pyrolytic logwood boilers and automatic universal boilers) and Modratherm in Modra. Protherm (Vaillant Group Slovakia) was originally established in Skalica (Western Slovakia) by Czech entrepreneurs. The firm now is part of the Vaillant Group. It is currently the biggest manufacturer of boilers in the CEE region. After having received an investment of over 5 million euros, the production facility supplied over 250,000 boilers to the Vaillant Group and under Protherm brand to CEE, CIS and other countries including China. Protherm therefore replaces the production of floor standing boilers in plants that were closed in Germany and Italy. The share of exports of Protherm production was thus over 90%. Apart from Skalica, the Vaillant Group manufactures boiler modules for the whole group in its new plant in Trencianske Stankovce (Vaillant Industrial Slovakia). Vaillant Group sold 12,200 Protherm boilers in Slovakia in In total, Vaillant Group has over 1,000 employees in Slovakia. In 2010 the brand Protherm was integrated into division Saunier Duval Brand Group within the Vaillant Group. Protherm also introduced a solar thermal set including flat panels and a water tank working under atmospheric pressure (drainback). Attack (former Termogas) in Vrutky is a privately held dynamic Slovak manufacturer of floor standing boilers, wall hung gas boilers and solid fuel boilers. Attack also offers gas storage water heaters, solar thermal panels and radiators from Purmo. Attack is the biggest Slovak manufacturer of heating products (after Protherm) with employees (2012). Its worldwide exports of boilers amounted to over 17,800 units in Romania is Attack s main export market for solid fuel boilers. Furthermore Attack exports to Austria, Poland, Czech Republic and another 42 countries incl. USA, Canada, New Zealand, Australia, Kazakhstan and the traditional CEE and SEE markets. The domestic solid fuel boiler manufacturer Vimar focuses on both the Slovak market and exports. Vimar exported over 2,300 biomass boilers in mainly to Germany and Romania. Moreover, the company has minor sales to Ukraine, Poland, the Czech Republic, and Benelux. Exports to Russia and Austria stopped. BSRIA Page 17 of 32 Report 56368/83

21 4 MARKET DRIVERS AND TRENDS 4.1 MARKET DRIVERS The main market driver during the past year has been the replacement market. Sales to new housing fell due to the weak new construction of dwellings in Economic background Purchasing power in relation to imported products has improved substantially since 2008, when the then Slovak currency appreciated quickly in the wake of parity change before entering the Eurozone. This made imported products, including heating products, relatively more affordable. On the other hand, a very high unemployment rate (14% in 2012) and reduced social benefits still squeeze the purchasing power of Slovak households. In addition to this, the current leftist government added an increased tax burden. Energy crisis and alternatives Slovak market is gradually shifting towards condensing boilers on one hand and alternatives on the other. The gas crisis in January 2009, when Slovakia was completely cut off from Russian gas, inevitably made everybody think about alternatives. Such events support sales of biomass boilers and possibly heat pumps in the long term. Financial subsidies From 2009 to 2011, boiler market in Slovakia was also driven by national subsidy program for biomass boilers and solar thermal collectors. Subsidies supported households in order to boost local production and reduce dependency on imported natural gas. Slovenska inovacna a energeticka agentura (SIEA) allocated 7 million. Around 75% of the funds was spent on boilers connected to solar thermal collectors (approx. 5,500 installations) and 25% on biomass boilers (1,500 households). 58% were pyrolytic boilers, 41% pellet boilers and 1% other wood burning boilers. The program helped to promote the solar thermal market as the total number of installation increased by 150% in just 3 years. It also boosted biomass boilers market in Slovakia, almost half of all biomass boilers sold were produced by domestic manufacturers. There were no subsidies in 2012 and none are expected in However, the new centre-left government announced that it would consider renewing the subsidy scheme in the near future in order to boost the energy production from renewables and also to meet the commitments towards the EU. 4.2 MARKET TRENDS It is expected that the overall boiler market would decrease between 4-5% in In any case, condensing boilers are expected to be the strongest segment, with all other products losing shares. Solid fuel boilers may profit from further substantial rises of gas price in the coming years. The biomass boiler market might be boosted again should the government decided to renew its subsidy program. Boilers are also increasingly cannibalised by heat pump, although still to a very low extent. The heat pump market is still not as developed as in the neighbouring Czech Republic. BSRIA Page 18 of 32 Report 56368/83

22 Table 14 The domestic boiler market historical trends, volume ( 000 units), CAGR Wall hung atmospheric gas % - condensing % - non-condensing % Floor standing atmospheric gas % - condensing % - non-condensing % Oil / gas pressure jet burners % - condensing % - non-condensing % Solid fuel % Others % Total % - condensing % Figure 6 The domestic boiler market historical trends, volume ( 000 units), Table 15 The domestic boiler market forecasts, volume ( 000 units), e 2013f 2014f 2015f 2016f CAGR Wall hung atmospheric gas % - condensing % - non-condensing % Floor standing atmospheric gas % - condensing % - non-condensing % Oil / gas pressure jet burners % - condensing % - non-condensing % Solid fuel % Others % Total % - condensing % BSRIA Page 19 of 32 Report 56368/83

23 Figure 7 The domestic boiler market forecasts, volume, ( 000 units), Market forecast Forecast assumptions The regulated gas prices for households would rise only by 0.5% in 2013; electricity price would drop by 3%; No subsidies available for biomass boilers and solar thermal in 2013, possible re-launch of subsidies in ; Family house construction expected to stagnate in 2013; The local automotive industry will remain the main driver of the Slovak economy; Political stability; the centre-left government has a majority in parliament; The cancellation of business-friendly 19-percent flat tax could deter FDI inflow, austerity measures and tax hikes could further undermine domestic demand. BSRIA Page 20 of 32 Report 56368/83

24 5 DOMESTIC BOILERS STRATEGIC OVERVIEW 5.1 MACRO-ENVIRONMENTAL ANALYSIS The following table looks at factors that may affect the market, covering political, economic, social, technical, legal and environmental issues. The factors are assessed in terms of their certainty and relevance or importance to the market. Table 16 PESTLE analysis of the Slovak heating products market Political C. I. Economic C. I. Social C. I. Slovakia entered EMU with a strong FX rate which now favours imports Insecurity about a new subsidy program for biomass boilers and solar thermal Improved economic performance due to structural reforms of the past governments High gas prices support sales of alternatives 7 9 Unemployment still high Inflow of cash from the EU funds 8 6 Technical C. I. Legal C. I. Environmental C. I. Abolishing of flat tax may discourage foreign investment Scores: I: Importance. From very important (10) to irrelevant (0) C: Certainty. From very certain (10) to very uncertain (0) 5 6 High pollution from solid fuel boilers MARKET ATTRACTIVENESS The following chart analyses the market in terms of 5 forces which affect the market s attractiveness and profitability for manufacturers. Figure 8 Competitive forces analysis Threat of New Entrants: Low/Medium Bargaining Power of Suppliers: Low/Medium Competitive Rivalry: Medium/High Bargaining Power of Customers: Medium/High Threat of Substitutes: Low/Medium BSRIA Page 21 of 32 Report 56368/83

25 Low Market Attractiveness* Medium High DOMESTIC BOILERS Table 17 Competitive forces analysis Force Bargaining power of suppliers Threat of new entrants Bargaining power of customers Threat of substitutes Competitive rivalry Comments Local manufactures source material and components at global prices. Those which are parts of larger groups (Protherm-Vaillant) can exercise a common purchase policy. The market is close to saturation. However, Polish manufacturers of biomass boilers may target the Slovakian market. Distribution has been consolidating during the past few years. Heat pumps will be increasingly installed, as well as solar thermal systems. Provided gas price rises beyond reasonable level, households would switch to air-water heat pumps. he market is highly competitive, especially in wall hung gas. Table 18 Market attractiveness matrix by product type Heat pumps Indirect cylinders Logwood boilers Solar thermal systems Condensing floor standing boilers Universal solid fuel boilers Wall Hung condensing domestic boilers Pressure jet domestic boilers Floor-standing noncondensing boilers Wall hung non-condensing domestic boilers Small Medium Big Market Size Note: *Market attractiveness measured by market growth, competitiveness and manufacturer profitability BSRIA Page 22 of 32 Report 56368/83

26 6 STRUCTURE OF SUPPLY 6.1 MARKET SHARES The country hosts one of the biggest manufacturers of boilers, Protherm in Skalica, which belongs to the Vaillant Group. The legal company name is now Vaillant Group Slovakia. Moreover, the privately held Attack (former Termogas) produces wall hung gas boilers, cast iron floor standing boilers and cast iron and mild steel solid fuel boilers. Attack expanded extensively in the past years to become one of the largest manufacturers in the EU region. Especially its cast iron solid fuel boilers are exported to the US, Canada and New Zealand. Modratherm (now MTH, s.r.o.) from Modra in Western Slovakia manufactures domestic solid fuel steel boilers, including pyrolitic. MTH also rebrands Viadrus cast iron boilers on the Slovak market. Vimar is a traditional Slovakian producer of (steel) solid fuel boilers Wall hung gas boilers In the condensing segment, the local Protherm (Vaillant Group) managed to gain share during the past several years and is now the strongest player - followed by both Bosch brands Junkers and Buderus. From 2011 Buderus and Junkers are distributed jointly after a merger of the local Buderus distributor with local Robert Bosch subsidiary. Only Geminox is sold through an independent distributor Procom Slovakia. Dakon, which is also part of Bosch group, left the market in Slovakia as the production of gas boilers in the Czech Republic ceased. Ferroli is distributed by the Slovak VI Trade and by the local branch of the Czech Enbra, which also has exclusivity for the Czech market. Riello (Beretta) is represented by Satec SK, a local wholesaler. Table 19 Market shares for wall hung (condensing) gas boilers, 2011 and 2012e e Holding Group Company / Brand Importer 000 units % 000 units % Vaillant Group Protherm Local manufacturer % % Bosch Group Buderus Subsidiary % % Vaillant Group Vaillant Subsidiary % % Bosch Group Junkers Subsidiary % % Viessmann Viessmann Subsidiary % % Immerfin Immergas Subsidiary % % Bosch Group Geminox Procom Slovakia % % Attack Attack Local manufacturer % % Ferroli Ferroli Enbra, VI Trade % % Riello Beretta Satec SK % % Thermona Thermona Subsidiary % % Centrotec Sustainable Wolf Wolf Slovenska Republika % % Others % % TOTAL % % BSRIA Page 23 of 32 Report 56368/83

27 Figure 9 Market shares for wall hung (condensing) gas boilers, volume, 2012e The non-condensing segment is clearly dominated by local producer Protherm that holds almost half of the market. Attack, the other local producer now offers both condensing and non-condensing boilers. The Czech producers Moratop and Thermona are rather weak in Slovakia. Thermona is more active in the commercial cascade systems in the region. Besides, only the Italian manufacturer Immergas managed to gain a significant market share in Slovakia in this segment. Table 20 Market shares for wall hung (non-condensing) gas boilers, 2011 and 2012e e Holding Group Company / Brand Importer 000 units % 000 units % Vaillant Group Protherm Local manufacturer % % Attack Attack Local manufacturer % % Immerfin Immergas Subsidiary % % Bosch Group Junkers Subsidiary % % Bosch Group Buderus Subsidiary % % Riello Beretta Satec SK % % Viessmann Viessmann Subsidiary % % Vaillant Group Vaillant Subsidiary % % Ferroli Ferroli Enbra, VI Trade % % Thermona Thermona Subsidiary % % Ariston Thermo Group Ariston MTS Ceska % % Others % % TOTAL % % BSRIA Page 24 of 32 Report 56368/83

28 Figure 10 Market shares for wall hung (non-condensing) gas boilers, volume, 2012e Floor standing atmospheric gas boilers In the rather small floor standing atmospheric condensing segment, Buderus, Viessmann and Wolf are the main players. Table 21 Market shares for floor standing condensing atmospheric gas boilers, 2011 and 2012e e Holding Group Company / Brand Importer 000 units % 000 units % Bosch group Buderus Subsidiary % % Vaillant Group Vaillant Subsidiary % % Viessmann Viessmann Subsidiary % % Centrotec Sustainable Wolf Wolf Slovenska Republika % % Others % % TOTAL % % Figure 11 Market shares for floor standing condensing atmospheric gas boilers, volume, 2012e BSRIA Page 25 of 32 Report 56368/83

29 The non-condensing floor standing atmospheric segment is dominated by local producers Protherm and Attack, holding a combined share of almost 95%. This is mainly a replacement market as Slovakia has a very large park of floor standing boilers and a very large share of households live in family houses with boiler rooms. Since space is not a constraint, cheaper non-condensing floor standing boilers are often preferred to wall hung boilers. Table 22 Market shares for floor standing non-condensing atmospheric gas boilers, 2011 and 2012e e Holding Group Company / Brand Importer 000 units % 000 units % Attack Attack Local manufacturer % % Vaillant Group Protherm Local manufacturer % % KKCG Viadrus Various % % Ferroli Ferroli Enbra, VI Trade % % Bosch Group Buderus Subsidiary % % Others % % TOTAL % % Figure 12 Market shares for floor standing non-condensing atmospheric gas boilers, volume, 2012e Solid fuel boilers The solid fuel boiler market has been very dynamic in the past years and the main local and Czech suppliers profited from its development. Almost all Czech biomass boiler manufacturers export to Slovakia: Atmos, Opop, Benekov, Ponast, Verner, Viadrus. The latter is the natural leader in universal cast iron boilers and now has almost a 50% share of the solid fuel boiler market. The local manufacturer Attack has been extending its product portfolio and now holds around a fifth of the segment in volume. Vigas is a local logwood specialist with exports to the whole CEE region. Among foreign suppliers only Ferroli has significant sales. Immergas also entered the solid fuel boiler market in the past with cast iron products; however sales were negligible in Herz sells pellet boilers in Slovakia. BSRIA Page 26 of 32 Report 56368/83

30 Table 23 Market shares for solid fuel boilers, 2011 and 2012e e Holding Group Company / Brand Importer 000 units % 000 units % KKCG Viadrus Importer % % Attack Attack Local manufacturer % % Bosch Group Buderus Subsidiary % % Vimar Vimar Local manufacturer % % Opop Opop Importer % % Atmos Atmos Importer % % Ferroli Ferroli Enbra, VI Trade % % Vaillant Group Protherm Local manufacturer % % Slokov Slokov Importer % % Benekov Benekov Importer % % Immerfin Immergas Subsidiary % % Others % % TOTAL % % Figure 13 Market shares for solid fuel boilers, 2012e BSRIA Page 27 of 32 Report 56368/83

31 6.2 PRODUCT RANGE Table 24 Product range suppliers of domestic boilers Company / Brand Importer / Representation WH FS PJ SF OTH Cond Country of origin Ariston Ariston Thermo Group X X Italy, France Attack Local manufacturer X X X X X Slovakia Benekov Importer X X Czech Republic Beretta Satec SK X X Italy Germany, Czech Republic, X X X X Buderus Subsidiary Turkey Ferroli Enbra, VI Trade X X X X X Italy Gruppo Imar Interconti X X X Italy Herz Subsidiary X Austria Immergas Subsidiary X X X X Italy Junkers Subsidiary X X X Germany Modratherm Local manufacturer X Slovakia Moratop Importer X X Czech Republic Ponast Importer X X Czech Republic Protherm Local manufacturer X X X X X Slovakia Thermona Subsidiary X X X X X Czech Republic, Italy Vaillant Subsidiary X X X Germany Viessmann Subsidiary X X X X X Germany Vimar Local manufacturer X Slovakia Wolf Wolf Slovenska Republika X X Germany WH = wall hung; FS = floor standing; PJ = pressure jet; SF = solid fuel; Oth = others BSRIA Page 28 of 32 Report 56368/83

32 6.3 SWOT ANALYSIS Table 25 SWOT analysis of Protherm (Vaillant Group Slovakia) Strengths Weaknesses Products positioned in the low end price segment have high acceptance in Eastern Europe and CIS countries Still relatively low labour costs in Slovakia Proximity to its important CEE markets Being part of the Vaillant Group makes Protherm the production hub for the whole group, OEM supplies go to the whole group, over 90 types of boilers Protherm absorbs the production capacity which was moved from high-cost countries such as Germany or Italy within and would produce all f/s boilers for the Vaillant Group Protherm might lose its brand independence and transform to a purely production facility for the Vaillant Group, the brand might disappear and be replaced by other groups brand Increasing purchasing power on its home markets will shift demand from low-cost Protherm to other (premium) brands Ever increasing production costs in Slovakia, intensified by the Euro New investment in 2005 increased production capacity to annual 250,000 boilers Well established distribution in CEE countries, knowledge of the market and brand presence in CEE, Balkan, CIS countries, Baltic states Ongoing new product development Vaillant built a new plant in for boiler modules in Slovakia near Trencin (200 employees), which now also supplies Protherm Opportunities Threats Expansion under its Protherm brand, especially in MENA, CIS and CEE, increase of exports Product diversification (specialised biomass boilers, solar systems, etc.) Vaillant Group closes down the factory and moves to Turkey if labour cost increases substantially in Slovakia Loss of flexibility due to being part of a large group Competition with Demir Döküm within the Vaillant Group which target similar price segments and similar products BSRIA Page 29 of 32 Report 56368/83

33 7 DISTRIBUTION OF DOMESTIC BOILERS 7.1 OVERVIEW Unlike the Czech Republic, Slovak distribution is still undergoing consolidation from fragmented family-run companies towards larger groups of HVAC and sanitary wholesalers. Most of the Slovak HVAC wholesale chains are privately, individually owned. Furthermore, the Czech wholesaler Ptacek (also family owned) has been expanding in Slovakia during the past years and now runs 10 outlets across the country. The Slovak HVAC wholesaler Gama Myjava was acquired by Wolseley in However when financial crisis broke out, Gama Myjava was changing hands quickly. The Brits divested the operation in 2009 to a private British company Bolton, later Bourdon. The third British owner then sold Gama Myjava to the Austrians. In this way, SHT Haustechnik AG (former Hild/Pinguin) set its foothold in Slovakia. Ironically, after series of acquisitions, Gama Myjava finally became part of Wolseley s main competitor in Austria (Wolseley owns in Austria a leading wholesaler ÖAG AG). In Slovakia, SHT Haustechnik AG also acquired another HVAC specialist Technopoint Sanitrends in 2012, now rebranded to SHT Technopoint. The expansion of DIY stores was also halted by the economic recession. Baumax was the first and only to enter Slovakia before 2000 and now has 14 stores. Hornbach entered later in 2004 and now runs 2 outlets: Bratislava and Kosice. 7.2 DISTRIBUTION OF DOMESTIC BOILERS Table 26 First point of distribution for manufacturers / importers, 2012e 000 units % Wholesalers % Installers % Retailers (incl. DIY) % Direct supply (house builders ) % Others (commissioning agents ) % Total % Figure 14 First point of distribution, domestic boilers, 2012e BSRIA Page 30 of 32 Report 56368/83